Join        Login             Stock Quote

Reality Bites For Groupon

 December 28, 2012 03:08 PM

It seems so long ago now. But just over two years ago, Google (GOOG) offered to buy social buying site Groupon (GRPN) for a cool $5.3 billion, plus a $700 million earn out provision if certain business targets were achieved.  Groupon CEO Andrew Mason said no thanks, continued to build out the business and took the company public in November of 2011.

[Related -Groupon Inc (GRPN): RBC Upgrades Recommendation, With 16% Downside – Say What?]

Groupon enjoyed a moon-shot debut as a publicly traded company. The online coupon service's stock advanced 31% to $26.11 on its first day of trading, a level that valued the company at about $16 billion.

Mason's decision to kiss off Google probably makes many Groupon employees wince these days, as the company is in a free fall.  As of December 27, Groupon's stock is down 76% on the year and the company's market value is all of $3.1 billion. Free cash flow has been shrinking all year and the company is one of the most shorted stocks on the NASDAQ.

[Related -Call Options Active on Groupon]

GRPN data by YCharts

Covestor manager Barry Randall, who runs the Crabtree Technology portfolio, predicts Groupon will file for bankruptcy protection in 2013. "All you need to know is that in its most recent four quarters of business, Groupon's quarterly cash flows have been $879 million, $38 million, $25 million and $15 million," Randall noted in a recent post. "We don't think you need a Wall Street analyst to tell you how this is going to end."

GRPN Free Cash Flow data by YCharts

Turns out Groupon's business model, so heralded two years ago, has deep flaws. Groupon sends outs massive email blasts offering steep discounts on everything from day trips to Vermont to a teeth whitening session. It takes a steep cut of the action from vendors on any new business they manage to attract.

Columbia Business School Professor Rita McGrath and others have pointed out that Groupon's business model doesn't create much brand loyalty among consumers (who pay nothing) or vendors and can be easily copied by rivals. That reality and slowing growth may make it difficult for Groupon to find a buyer in 2013 if it decides to put itself up for sale, according to this analysis by Bloomberg.

None of this seemed to matter much to Google and Internet investors two years ago. It sure does now.

The post Reality Bites for Groupon appeared first on Smarter Investing.

iOnTheMarket Premium


Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageReversals After a Gap on the Open Could Mean Anything

Yesterday stock indexes gapped up on the open but then reversed course to close sharply lower. This type of read on...

article imageJobless Claims Fall To 15-Year Low

After reading today’s weekly update on jobless claims the Fed’s comment yesterday that “economic activity read on...

article imageGreece, EMU and Democracy

One more post on Greece, possibly not the last read on...

article imageA Tangled Tale Of Rate Hikes & Inflation Expectations

The Federal Reserve continues to signal that it will start raising interest rates later this year, read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.